Why growth stocks are eager to take off this earnings season

Brad Neuman, Alger Director of Market Strategy, joins Yahoo Finance Live to break down how earnings season impacts the stock market, discuss the outlook for economic recovery.

Video Transcript

ZACK GUZMAN: Welcome back to Yahoo Finance Live as we continue to track the latest results in this quarter's earnings season. And interesting to see Netflix shares recovering just slightly here in today's session, still off by about 7% after their big subscriber miss. But they beat on the top and bottom lines. And that has been the trend so far in first quarter results. Interestingly, the big banks kicked us off with some large beats as well, exceeding forecasts by 37% while the rest of the market is beating by about 10%, raising questions about how much you got to beat expectations here to really see a boost in stock prices.

And for more on that, I want to bring on our next markets guest to discuss. Brad Neuman is Alger's director of market strategy. He joins us now. And Brad, I mean, as we move further along here, expectations are going to play, I think, a larger and larger role. But when you look at relative to the growth names we're talking about, maybe a Netflix versus some of those reopening plays, which one do you think maybe presents the better opportunity right now?

BRAD NEUMAN: Well, for us at Alger, we think we can have our growth cake and eat the recovery, too. So what we're trying to find is the best of both worlds. Companies that can gain market share have strong returns on capital, high competitive advantages, all those things, but also benefit from a recovery in that market.

So, you know, I think a lot of these stocks are represented in the recently launched product at Alger called the Alger Mid-Cap 40, which combines what we think is the best of both active management and ETFs, which, of course, give you good liquidity, tax efficiency, and low cost. And so in there, we have some exposure to things like restaurants, banks, travel-related companies, but they're growth companies.

AKIKO FUJITA: What stood out to you so far in the earnings that we've gotten? I mean, when you think about where we were a year ago, certainly the expectations were high for a big pop in this quarter. And yet, you've got cases like Netflix, where the expectations seem to have run out way far ahead of actual results.

BRAD NEUMAN: Well, you know, a good example today is a company that we own in some of our strategies, like that Alger Mid-Cap 40 that I just mentioned, Signature Bank. We believe it's a growth stock. It's a bank that had really strong deposit growth. They were able to beat strongly. And the stock reacted. So I think, you know, it is a game of expectations. I wish there was a one-size-fits-all answer. It's really takes a lot of research to be able to figure out what's priced in and what's not. And that's really what we spend our time doing at Alger.

ZACK GUZMAN: Yeah, Brad, on the restaurants front, we're going to get the update from Chipotle with their earnings as well. But we've talked a lot about how some of those maybe fast casual names, those bigger companies that haven't had to deal with maybe indoor dining being closed down for that long and comps, what do you maybe-- when you dig into the restaurants there, what are you seeing in terms of the winners and the losers and the way that that might change now moving forward?

BRAD NEUMAN: Well, one thing we like to do in a lot of these areas is rather than trying to bet on a particular winter all the time, sometimes we kind of play picks and shovels. In other words, we try to find companies who will benefit from the overall growth of an industry. And so, within restaurants, we do think that there's a big end market recovery underway. So in terms of how much consumers spend on food and restaurants versus food at home, it used to be split 50-50 roughly before COVID. Today, it's more like 35% spending at restaurants.

So we think that there's a big recovery to go from that 35% back up to that 50-50 kind of split. And companies that will benefit from that we think are companies like the distributors. US Foods, for instance, again, another company held in our Alger Mid-Cap 40 ETF that we think can gain not just from that end market recovery, but also from consolidation in the space as they grow their market share through scale and technology.

AKIKO FUJITA: Brad Neuman, Alger director of market strategy, it's good to talk to you today.